|Shares Out. (in M):||35||P/E||0.0x||0.0x|
|Market Cap (in $M):||4||P/FCF||0.0x||0.0x|
|Net Debt (in $M):||-1||EBIT||0||0|
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MYRX is a mispriced option that offers asymmetric risk-reward with a proven CEO and zero economic or market sensitivity. CEO Jonathan Couchman has monetized two prior NOL shells in the last few years that delivered $30 - $50 million to shareholders. Therefore, we think MYRX should now likely be valued ~100% higher than it is today, with another 100% upside upon the consummation of a transaction, all with no reliance on what the Fed, Congress or the market does. Note: this security may be the smallest investment idea in the history of this website (though not the most illiquid), but price is what you pay, value is what you get. Nonetheless, it is only appropriate for much smaller funds and personal accounts (in fact, there is an NOL rights plan that limits any shareholder from buying over 4.75% of the company, so the maximum investment here is $200k or 1.6mm shares).
See link for tables and more detailed financial data: https://www.dropbox.com/s/bhjjkfjiodckb5g/MYRX%20Write%20Up%20External.pdf
Myrexis (MYRX) Investment Thesis
Security: Myrexis common stock
Timing: 12 months
Catalyst: Acquisition, Reverse Merger or other Transaction
Myrexis Brief Corporate History
In June 2009, Myriad Genetics (MYGN) spun out its research drug & development business along with $188 million in cash into a newly formed subsidiary called Myrexis (MYRX). After spending over $90 million on R&D and marketing, Myrexis decided to suspend further development activity and retained an investment banking advisor to evaluate strategic alternatives. In May 2012, the company hired biotech executive Richard Brewer as CEO to help evaluate potential acquisitions of commercial-stage biopharmaceutical assets with its remaining cash. In an unfortunate twist, Brewer died after a long battle with a rare form of blood cancer in August 2012, and in November 2012, the company concluded that it was in the best interests of the shareholders to liquidate. The company filed a plan of liquidation whereby shareholders would receive an estimated $2.67 to $2.83 liquidation distribution. The shareholder meeting date was set for January 23, 2013. The day before the meeting was to take place, Myrexis announced that they were cancelling the plan of liquidation and would instead issue a special dividend of $2.86 per share. Additionally, the company announced that Jonathan Couchman would take over as CEO, and that all other executives and board members would resign. In February 2013, Myrexis issued 7 million shares to Couchman for a 20% interest in the company.
Clearly, the purpose of this transaction was to provide then-current Myrexis shareholders with essentially all of the cash earmarked for liquidation, but to preserve and potentially monetize the company’s valuable historical net operating losses, which would have been worthless in a liquidation. This opportunity now exists because investors have all but forgotten about Myrexis, despite the fact that it still owns a valuable $150 million NOL with an executive with a track record of monetizing such assets.
Myrexis is essentially valued at zero but could be worth up 10x or $30 million – with virtually no economic or market correlation
After receiving their special dividend in February, investors seem to have abandoned Myrexis. The shares traded at $2.95 per share the day before the $2.86 distribution and, afterwards, traded down to below $0.10 per share. With 35 million shares outstanding, the current market cap of the company is just over $4 million.
However, as noted, the company has $147.7 million in federal and state net operating losses and $3.0 million in federal tax credits. Assuming a 35% tax rate, these assets could theoretically have a maximum value of over $50 million, assuming there is taxable income to utilize the NOLs.
The outcome for Myrexis is based on the ability of CEO Jonathan Couchman to monetize the company’s NOLs – and he has a track record of doing so twice in the recent past and his incentives are aligned with investors
The determining factor for Myrexis is whether Jonathan Couchman can successfully monetize the company’s NOLs. Two ways for tax assets to be monetized are i) acquisitions that generate taxable income and ii) reverse mergers. Fortunately for shareholders, Couchman has a history of monetizing NOL’s in both of these types of transactions.
Footstar / CPEX Pharmaceuticals / Xstelos Holdings
Footstar Inc. (FTAR) was a discount and athletic footwear retailer that filed for bankruptcy in 2004. After emerging from bankruptcy, Footstar named Jonathan Couchman as chairman, along with a new board, to maximize the value of its remaining assets. Footstar exited from its existing business relationships with K-Mart and Rite-Aid and decided to liquidate in 2009. The company would eventually give shareholders $9.85 per share in distributions, compared to a $5 stock price after emerging from bankruptcy. Post-distributions, Footstar’s main asset was a $123 million NOL and Couchman set out to find an acquisition that could take advantage of the value of these NOLs.
In 2010, the board became aware of a potential transaction with CPEX Pharmaceuticals (CPEX), a publicly traded company that owned a royalty on a drug called Testim marketed by Auxilium Pharmaceuticals. Footstar would eventually acquire CPEX for $72 million with a small amount of equity capital and $63 million of debt financing. Despite the fact that CPEX was sold through a competitive auction process, Footstar’s purchase price was very reasonable–CPEX shareholders even complained that the purchase price was far too low.
The value creation for existing Footstar shareholders was evident. The day before the merger was announced, Footstar had a market cap of $10 million, reflecting a fraction of the potential value of its $123 million NOL. Immediately after the merger was announced, the stock price increased over 100% for a market cap of over $20 million and the average market cap since has been $30 million.
Golf Trust of America / Pernix Therapeutics
While an acquisition of an asset with taxable income is the most straightforward way to monetize a NOL, there are other methods as well, such as a reverse merger. Jonathan Couchman and one of his colleagues, Michael Pearce (who joined the board of Myrexis in February 2013), were instrumental in extracting value for shareholders in another NOL shell using this method.
Golf Trust of America (GTA) came public in 1998 to own and acquire upscale golf courses across the US. In 2001, after a review of strategic alternatives, Golf Trust decided to liquidate its operations. After selling most of its golf courses in 2007, Golf Trust was left with a small amount of cash and an $85 million NOL. The company decided to terminate their plan of liquidation, Michael Pearce was named CEO and he joined the board with Jonathan Couchman and others. The company began evaluating strategic alternatives for maximizing value to shareholders.
In October 2009, Golf Trust announced a merger with privately-held Pernix Therapeutics (PTX) where Golf Trust shareholders would own 16% of the pro forma company. The transaction was well-received – Golf Trust’s share price (now to be renamed Pernix Therapeutics) increased over 40% in the two days following the announcement.
For a shareholder who held Golf Trust prior to the merger, the value of their interest increased substantially immediately after the merger to $18 million and for the years following the closing of the transaction to $30 million.
The Golf Trust transaction is another example of the ability of Jonathan Couchman and Michael Pearce to create shareholder value by monetizing a public shell with very few assets other than NOLs. Given the current valuation of Myrexis and Couchman’s track record, there is significant upside optionality for current shareholders.
The company has essentially zero cash burn and the NOLs expire in 2030 so Myrexis has the luxury of time to wait for the appropriate transaction to maximize the value of its NOLs
Myrexis is going to have essentially zero cash burn since the only company employee is Jonathan Couchman and his salary is set at $1.00 per year. Additionally, since the company de-registered with the SEC, the public company costs of securities filings and audit reports are eliminated. With over $1 million in cash on hand and essentially zero cash burn, Myrexis and Couchman have a substantial period of time to evaluate and select a transaction that is in the best interests of shareholders, and will monetize the company’s existing NOLs.
While the security is high risk, Myrexis offers asymmetric risk-reward with independent market catalysts
As mentioned earlier, the outcome for Myrexis is entirely based on the ability of Jonathan Couchman and his colleagues on the board, Michael Pearce and Steven Scheiwe, to find an appropriate transaction. Market and economic fluctuations have zero impact on the security so Myrexis represents a security with asymmetric risk-reward with a potential catalyst irrespective of market conditions.
Inability to monetize NOL
Clearly the largest risk is that Myrexis is unable to consummate a transaction that monetizes the NOL’s and the company has virtually no value in that case. This risk is mitigated by the track record of CEO Jonathan Couchman.
Prior Opposition to CEO Couchman
During the Footstar liquidation, certain investors opposed CEO Couchman’s goal of terminating the plan of liquidation because they felt that it was not in the best interests of shareholders. These investors eventually nominated two board members but they were not elected. The dissent shareholders had little reason to be upset, in our view. As illustrated in the company’s response, Footstar had been effectively liquidating the company with $6.00 in distributions by June 2008, compared to a stock price after the company’s emergence from bankruptcy of $4.55. Additionally, the company would go on to distribute an incremental $3.90 per share over the next two years as additional assets were sold. The sole purpose of terminating the plan of liquidation was to monetize the value of the company’s NOL – which Jonathan Couchman did after nearly all of the company’s assets were distributed. Had the company liquidated as the dissident shareholders wanted, Footstar shareholders would not have received the incremental ~$30 million in value that accrued to them as a result of the CPEX acquisition. For these reasons, we believe the opposition to Couchman’s plans was unwarranted.
 Due to a technicality, Footstar contributed all of its assets to a newly formed company called Xstelos Holdings (XTLS). After acquiring CPEX, Footstar sought shareholder approved to revoke its Plan of Dissolution from 2009. However, doing so required the approval of the then-current shareholders as of 2009 and since the company had de-registered, those records were not available. In order to facilitate the transaction, Xstelos was formed and all of the assets of Footstar were contributed to Xstelos. See the proxy statement for further details:
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